3AC founders remain silent, creditors go to court

3AC founders remain silent, creditors go to court

The co-founders of crypto hedge fund Three Arrows Capital are not cooperating with insolvency administrators, leaving its creditors scrambling to locate and freeze the company's assets.

3AC was ordered into liquidation by a court in the British Virgin Islands less than two weeks ago. Now, lawyers acting on behalf of the fund's creditors have said that co-founders Zhu Su and Kyle Davies "have not yet begun to engage with the foreign representatives in any meaningful way," court documents filed late Friday showed.

A court hearing in New York is scheduled for Tuesday at 9 a.m. ET.

People who identified themselves as "Su Zhu" and "Kyle" were present on a Zoom call on July 8, but their video and audio were turned off throughout and neither spoke despite being asked direct questions, the filing said. According to court documents, each dialogue was conducted by Singapore-based legal representatives Advocatus Law LLP and Solitaire LLP.

Davies was subsequently subpoenaed to testify and submit documents via video conference on July 19.

Christopher Farmer, a managing director at restructuring firm Teneo, noted that Three Arrows' Singapore office "appeared to be empty except for a number of inactive computer screens," lawyers said, adding that he also found unopened mail shoved on or under the door. People in nearby offices didn't see inmates in the office until May or early June 2022, they said.

The lawyers added that Zhu was allegedly involved in the sale of a property in Singapore. Singaporean real estate company EdgeProp reported The property was purchased in confidence by Zhu's 3-year-old son and was valued at about $49 million.

“Despite the founders’ lack of commitment, the foreign representatives continued their investigation with urgency and using all lawful means at their disposal,” the filing said.

A major risk to non-cooperation is that a significant portion of 3AC's assets - consisting of cash, cryptocurrencies and non-fungible tokens - are easily transferable, the lawyers wrote. So far, NFTs belonging to 3AC's Starry Nights Capital have already done this allegedly transferred to a new wallet.

Before freezing the fund, lawyers want the court to order 3AC's co-founders to list their assets - including wallets, bank accounts, derivative contracts, securities and other corporate documents.

3AC is at the center of a liquidity crisis in the cryptocurrency market as it sparked a wave of contagion and fallout from some of the industry's biggest names, from which it borrowed significantly. After initial speculation about 3AC's bankruptcy grew, many companies sought to allay investor fears that they had no exposure to the fund.

3AC officials filed for bankruptcy on July 1, citing a slump in business due to extreme market fluctuations. Lawyers from Latham & Watkins wrote that they were not aware of the co-founders' whereabouts and that they had reportedly left Singapore.

“Three Arrows have borrowed unsustainably large amounts of money to put into various digital asset products, and therefore their extensive fingerprint means we may have to expect further liquidations here,” said Les Borsai, co-founder of Wave Financial. “However, I think the contagion effect has largely been mitigated.”

3AC had not responded to Blockworks' request for comment by press time.

Macauley Peterson contributed reporting for this story.

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The post 3AC Co-Founders Remain Silent, Creditors go to Court is not financial advice.